Spotify Not a Threat to Apple – More an Opportunity July 31, 2009

Despite all the noise over the Spotify apps approval it may be that Apple actually sees ‘cloud’ music as a potential lever to sell even more intelligent devices, not a threat.

Much dust has been kicked up in a pre-emptive way in anticipation of Apple rejecting the iPhone app for Spotify, the cloud-based music streaming service . Apple has iTunes so it won’t want a model like Spotify disrupting the file download model.

According to digital music expert, Gerd Leonhard, it’s actually in Apple’s interest to boost models like Spotify for all they’re worth. The big money is in selling its high-margin music playing devices.

It’s all straight-forward according to Leonhard: “Apple sells hardware, not music, and anything that will sell more hardware, like Spotify, is welcome.

In fact streamed music might be a tablet’s killer application. According to Leonhard the financial model under which Spotify and others like it must operate is completely unsustainable. “There is no way that Spotify can survive this magnitude of popularity – it would kill them financially.

“Apple knows that streaming-on-demand at the current royalty rates and deals represents a death-wish,” he claims, “and that’s why they’ll be OK with Spotify getting burned rather then themselves.”

The answer, according to Leonhard is structural. The music industry must support a new, fair and equitable licensing approach to enable models like Spotifiy to flourish.

As things currently stand Spotify has absolutely no bargaining power and will be unable to develop. The problem lies, he says, with the music industry and its inability to see past its historic business models.